Swamy to get Chidu files today, but it might not be enough

Janata Party chief Subramanian Swamy will get what he has been waiting for: a certified copy of the Central Bureau of Investigation’s (CBI’s) 2G file containing documents with endorsements and signatures of former Finance Minister P Chidambaram (now home minister).

Swamy believes this file will prove Chidambaram’s complicity in the 2G scam. Firstpost has got access to the file and believes that Swamy may not find exactly what he is looking for. He may have enough to kick up a small political storm, but the documents may not give him enough ammunition to initiate criminal proceedings against Chidambaram for his alleged role in the 2G scam.

This CBI file, which runs into nearly 1,200 pages, has documents purporting to show that Chidambaram had cleared over 60 percent equity dilution in Unitech. Norway-based Telenor had bought shares worth Rs 6,200 crore even before Unitech rolled out its services. The CBI has mentioned this in its charge-sheet too, but this file puts it on record that Chidambaram was the last person to clear the Unitech file for equity dilution.

This CBI file, which runs into nearly 1,200 pages, has documents purporting to show that Chidambaram had cleared over 60 percent equity dilution in Unitech. AFP

“There is a bar on selling a telecom licence for at least three years after a telecom company is allocated spectrum. This CBI file shows ingenious and crooked ideas and methods that Chidambaram adopted for share/equity dilution in telecom companies. He allowed dilution of shares/equity to an extent where it was as good as selling stakes of the company,’’ Swamy told Firstpost.

Asked what law Chidambaram had allegedly broken, Swamy retreated and said the minister allowed huge stake dilutions even before they rolled out services this was equivalent to selling the company.

This CBI file wasn’t placed on record with the special court that is hearing the 2G case at Patiala House. Special CBI judge OP Saini had directed the CBI to provide Swamy with a copy last week.

Chidambaram is under fire because he did clear foreign investment in Unitech even before it had rolled out its service. But the technical question is whether ‘equity dilution’ can be equated with sale.

Foreign direct investment (FDI) rules allow for 74 percent foreign investment in a telecom company. Any telecom company seeking foreign investment up to 49 percent is deemed to get “automatic’’ government approval. But proposals for foreign investment beyond 49 percent and up to 74 percent in telecom companies will require approval from the finance ministry.”

The point of contention here is that the Shahid Balwa-promoted Swan Telecom was allotted a unified access service licence (UASL) for 13 circles for Rs 1,537 crore and it offloaded 45 percent before the rollout to UAE-based Etisalat for Rs 4,200 crore. And Unitech Wireless offloaded 66 percent to Norway-based Telenor for Rs 6,200 crore.

The Swan-Etisalat deal did not require any approval because it diluted equity upto 45 percent – below the 49 percent automatic approval norm. But the Unitech-Telenor file went for Chidambaram’s approval and he cleared the file with his signature.

Swamy argues that this kind of ‘equity dilution’ amounts to selling. Since the lock-in period for selling telecom licences is three years, Chidambaram was as much responsible for the sale as Unitech was.

Chidambaram, however, may get the benefit of doubt because until 2008, when the equity was diluted in Unitech, no telecom law disallowed the  dilution of equity or shares.

Under FDI rules, equity dilution is the accepted norm. All the telecom companies, including Tata, Idea, Airtel and even AT&T, have consistently diluted their equity in the past. And the ministries of finance, corporate affairs and law and justice are all liable for this 'alleged’ lapse, because all of them endorsed equity dilution in the cases of all the telecom companies.

Even the Foreign Investment Promotion Board and the Cabinet Committee on Economic Affairs had permitted equity dilution, which, they think, is not the same as outright sale of spectrum.

In the Unitech case, Chidambaram is empowered to give permission for dilution upto 74 percent. The CBI sees no issues in allowing equity dilution through foreign funds.  “That’s why the CBI did not initiate criminal charges against Etisalat and Telenor, because equity dilution is an accepted norm under FDI,’’ CBI sources say.

Another fact that may help Chidambaram is that during the lock-in period, a telecom company can’t decrease or withdraw its invested money. And in Unitech’s case, it hasn’t withdrawn the invested amount. It only diluted equity to Telenor for a price.

In fact, clarity on the lock-in period came on 23 July 2009, when the government issued a letter spelling out the law. The letter, which is part of the CBI file, reads: “There shall be a lock-in period for sale of equity of a person whose share capital is 10 percent or more in the UAS licensee’s company on the effective date of UAS licence, and whose net worth has been taken into consideration, of three years from the effective date of the UAS license or till fulfilment of all the rollout obligation under Clause 34, whichever is earlier.’’

The letter further says: “Issue of additional equity share capital by the UAS licensee company by way of private placement/public issues is permitted. However, such a person shall not transfer in any manner such as sale, assignment, etc. his share capital directly or indirectly to any other person during lock-in period.’’

Chidambaram had cleared Unitech file much before this new law was introduced. And FDI norms, which allow equity dilution, seem to endorse the legality of his actions.

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